Levin-Coburn Report Investigates Causes of the Financial Crisis

Posted on April 19, 2011 by Michael Stocker

On April 13, after two years of investigation, Senator Carl Levin and Senator Tom Coburn, Chairman and Ranking Republican on the Senate Permanent Subcommittee on Investigations released a final report on their inquiry into the main causes of the financial crisis. The report presents new facts, findings and recommendations, with more than 700 new documents totaling over 5,800 pages.

The report focuses on the ways that financial firms deliberately took advantage of their clients and investors, on deeply flawed credit ratings, and on federal regulators who apparently cast a blind eye on these unsafe and unsound practices.

The report expands on evidence collected at four Subcommittee hearings in April 2010, examining four aspects of the crisis through a series of detailed case studies: 1) high-risk mortgage lending, using the case of Washington Mutual Bank; 2) regulatory inaction, focusing on the Office of Thrift Supervision’s failed oversight of Washington Mutual; 3) inflated credit ratings, examining the actions of Moody’s and Standard & Poor’s; and 4) the role played by investment banks, principally Goldman Sachs.

The report offers 19 recommendations, including a call for strong implementation of the new restrictions on proprietary trading and conflict of interest. The report also urges, in addition to the reform effected by the Dodd-Frank Act, that the SEC to use its regulatory authority to rank credit ratings agencies according to the accuracy of their ratings.

Contributed by Yoko Goto

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Cornerstone Weighs In on 2009

Posted on January 7, 2010 by Michael Stocker

Cornerstone Research today released its much-anticipated summary of securities class actions filings for 2009. As expected, the data compiled by Cornerstone reflects an overall decline in the number of securities cases filed compared to the bumper year of 2008. However, the summary highlights the fact that financial firms still make up a lion’s share of new filings—underscoring the key role that the these companies played in the financial sector catastrophes of 2007 and 2008.

Cornerstone’s 2009 summary reveals that 84 suits—roughly half of all filings—named financial sector defendants, well above the consumer non-cyclical sector with 33 filings and the communications sector with only 12 filings.

Although the percentage of S&P 500 index financial firms named as defendants in securities class actions dropped from 32.6 percent in 2008 to 11.5 percent in 2009, the financial firms named as defendants in 2009 still represented 39.1 percent of the sector’s total market capitalization.

The report also pointed out that class action filings continue recent upward trends in the numbers of cases including Section 11 and Section 12(2) allegations, and cases naming underwriters as defendants.

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